2/16/2011 @ 6:00PM

America's 25 Fastest-Growing Tech Companies

Every annual release of Forbes’ 25 Fastest Growing Technology Companies in America includes a revisit of the prior year’s list to see how it performed against the market. While the pace may have slowed, the stock market recovery continued. From March 12, 2010, through Feb. 2, 2011, companies on the Nasdaq 100 Technology Sector Index were up 27%; companies on the S&P 500 lagged far behind, but still registered a 13% increase. Our fast-growing techs crushed both indexes, gaining 44% overall, or 34% excluding acquisitions.

Our record of besting the broader market remains intact for the eighth consecutive year.

Last year’s Fast Tech class has been a good hunting ground for acquisition targets.
Hewlett-Packard
snapped up security software firm
ArcSight
and enterprise-level utility storage company 3Par during a 2010 buying spree. In a highly publicized bidding war, HP and
Dell
drove 3Par’s price up 235% to $32.98 by late September, resulting in the largest increase of all 25 companies. ArcSight increased 62% over the same time span. Credit card and payment company Visa made the third acquisition from our list when it bought electronic payment processor
CyberSource
(up 38%) for $2 billion in cash last July.

Shares of
Riverbed Technology
, which optimizes IT network and application performance, made the largest advance of the non-acquired businesses, increasing 156% to $35.65. The company also offers cloud computing services, something it has in common with trailing top performers Fortinet, up 139%, and Salesforce, up 78%.

Only seven stocks lost ground. NCI, an IT service provider for the federal government, was the worst offering on the fastest-growing tech list decreasing 28% over our tracking period. The biotechnology sector was the thread linking four underperformers, including
Myriad Genetics
and
Gilead Sciences
, down 19% and 17%, respectively.

To find the current crop of fastest-growing techs, we combed over 5,000 technology companies, looking for minimum sales of $25 million and sales growth of at least 10% over the latest 12 months. We also required median long-term (three-to-five year) earnings-per-share growth estimates to be greater than 10%. Finally, we ranked companies on their five-year sales growth, which needed to be in double-digit territory for each year.

Our filtering criteria did not end there. Using detailed scoring data from Audit Integrity, a global governance ratings and research firm (now part of GovernanceMetrics International) we disqualified companies with significant legal concerns, or possible accounting or governance issues. There were more subjective barriers to consider as well, including, but not limited to, information from analysts’ reports and other third-party sources.

The 2010 Fast Tech class had the lowest year-to-year turnover since the inception of the list in 2003. Only six companies fell off to make room for new blood, and one of them is not a true newcomer.
CommVault Systems
qualified for the 2008 and 2009 rankings, but failed to do so last year.

The five new names are probably not ones that the average investor knows, but perhaps should; four debuted in the top 10. The Chicago-based Neutral Tandem placed second overall with a sales growth rate of 100% every year for the past five years. The company enables broadband providers to exchange data between their respective networks.
ViroPharma
, the pharmaceutical developer of Cinryze and the antibiotic Vanocin, is sixth, having maintained a sales growth rate of 55% over the same time period.

Rackspace Hosting, (No. 7, 51% sales growth), SolarWinds (No. 10, 43% sales growth) an IT company that has little to do with renewable energy, and
Cubist Pharmaceuticals
(No. 14, 41% sales growth), round out the freshmen.